National welfare and individual happiness: Income distribution and beyond

This paper begins by observing that both national welfare and individual happiness are determined by more than just absolute income. Relative income is a crucial input to happiness, but according to accumulating evidence from “behavioral” economists, so also are status, endowments, cultural context, and even income in kind. These findings have policy implications that can be profoundly disturbing to many economists if they take them seriously. The paper concludes with suggestions for research. An appendix outlines a simple framework for research on the relationship between happiness, absolute income and relative income.